Assignment #6: Multiples valuation
Date due:
October 21, 2014
In this exercise, you will use multiples to come up with a valuation of the firm.
Total Points:
 For this assignment: 100
 If you get called upon to present: The presentation grade is a maximum of 10 points and will
count towards class participation. Who will present is chosen at random. So, if you are not
around to present, your presentation grade will be zero.
General instructions:
 Please prepare a write-up, minimum of 3 pages, excluding tables, explaining your choice of
multiple/s. Double-space. Please use Times New Roman font 11 and submit the write-up via
Turnitin.
 Please email the spreadsheet to me (please add it as a separate worksheet or separate section
to your spreadsheet from HW#5).
1. Discuss the historical valuation of your stock using the multiples. Be sure to explain unusually high or
low valuations (for example, SBUX's 2013 P/E is 500x and the TTM P/E is 222.2 due to a litigation
charge in 2013. You want to explain whether these are one-off or continuing events.) Use data from
Morningstar, and please fill in the table below.
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013 TTM
Price/Earnings
Price/Sales
Price/Book
2. Calculate your own historical P/E and P/S multiples for your company. You can get stock price
information from finance.yahoo.com and you can get the rest of the information from the 10-Ks or
Qs.
 Stock price
i. You may use a range of stock prices within the fiscal year, so you can have a range
of P/Es, and P/Ss.
ii. Please use the close price and not the adjusted close price. Yahoo adjusts previous
prices for any dividends and stock splits. This means that if you have a stock split in
2008, all previous adjusted close prices will be adjusted for the split; if you have a
dividend in 2009 all previous adjusted close prices will be adjusted for the dividend;
if you have a dividend in 2010, all previous adjusted close prices will be adjusted for
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the dividend, and so on. If you look in Yahoo, this week's close price and adjusted
close price will likely be the same (unless your company paid dividends or had a split
within the week). But if you go back two, three years or longer, there is a huge
difference between the close and adjusted close price. This is because of the
adjustments I just described.
iii. So, what to do? Use the close price. If your company had a stock split within fiscal
year 2010, please restrict your range of stock prices to between when the split
happened and the end of the year. For example (assuming a FY end of 12/31), if
within 2006-2012, your company only had a split on June 14, 2010, then for 2010,
please restrict yourself to stock prices between June 15, 2010 - December 31, 2010.
The same procedure will apply if your stock splits again in 2012.
You can use the following format as a guide
2007
2008
2009
2010
2011
2012
2013 Average Median
Stock price
Diluted EPS
Sales
Shares outstanding (diluted)
Sales per share
P/E
P/Sales per share
3. Discuss the current valuation of your company relative to its peers. Current multiples are available
from Morningstar, Yahoo Finance, and Google Finance. You can use the previous sources, the
company's 10-K and other competitors you found while doing industry research for the list of
competitors. If your company has distinct segments (i.e., the line of business is different and the
competitors are different for each segment), you want to do the this analysis for the major
segments. Please fill in the table below for each segment analysis that you do.
Current Multiples (TTM)
Your stock
Competitor 1
Competitor 2
Competitor 3
Competitor 4
Competitor 5
P/E
(trailing)
P/E
(forward)
PEG
P/S
P/B
EV/Sales
EV/EBITDA
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4. Using your forecast for FY 2015 or 2016, calculate a target price using the P/E and P/S multiples. You
may use the average, median, or any year/s that you think would be representative of your
company's future prospects. For example, if your company's best-selling product in 2006 was
hotcakes and your company is planning on discontinuing the product, the multiples in 2006 may not
be a good way to value the company going forward. You may also "handicap" the multiples based on
some other information, but please explain your reasons for doing so. Please also fill in the table
below.
2006A
2007A
2008A
2009A
2010A
2011A
2012A
2013A
2014F
2015F
Stock price
Diluted EPS
Sales
Sales per share (diluted)
P/E
P/S
5. Choose one target price that you think best represents the most likely scenario for your company.
Please explain your choice.
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